Equity Strategy US Equity Strategy - Top Client Questions From Our Three-Part "Policy Vs Pandemic" Series

The cascading effects of a stalled economy on earnings and free cash flow should weigh on dividend policies of U.S. companies for the foreseeable future. Under normal conditions, forward EPS broadly lead dividend cuts by about one year.

15 Apr 2020

A Wave of Dividend Cuts For The Foreseeable Future?

Source: Factset, UBS

This figure charts companies increasing dividends and S&P Forward EPS growth for the time period from January 2003 through January 2021.

Bear market rallies quite common but typically fade until a trough in EPS is in sight

The bear market of the early 2000s witnessed four significant rebounds in stocks, while there were three in 2008/09. What separates a bear market rally from the beginning of a new bull market is a coming rise in EPS expectations.

S&P 500 P/E STILL higher than pre-Financial Crisis levels when the economy was robust

The 16-handle on the S&P 500's multiple is higher than the highest P/E seen in 2007, pre GFC. While the Index has a larger number of higher-P/E Growth stocks nowadays, it still seems odd to us in the face of an unprecedented recession.

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